Retailers to benefit as 40% first-year tax allowance comes into force
The new allowance extends upfront tax relief to assets bought for leasing and to unincorporated businesses, including many independent retailers and smaller chains that do not benefit from full expensing
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Retail businesses making new investments in stores and supply chains are now able to claim larger upfront tax relief, following the introduction of a new 40% first-year allowance on plant and machinery.
The allowance, which was set out at Budget 2025 and came into force on 1 January 2026, enables companies to offset a substantial share of qualifying capital spending against taxable profits in the year the investment is made, reducing the immediate cost of upgrading or expanding retail operations.
For retailers, qualifying expenditure includes shop fittings, shelving, refrigeration units, point-of-sale systems and back-of-house equipment. Investment in warehouses, fulfilment centres and other logistics infrastructure also falls within scope.
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The relief is permanent and operates alongside the existing full expensing regime, under which companies can claim 100% capital allowances on qualifying main-rate plant and machinery. Full expensing is primarily used by larger incorporated businesses.
The new allowance extends upfront tax relief to assets bought for leasing and to unincorporated businesses, including many independent retailers and smaller chains that do not benefit from full expensing.
Under full expensing, companies can deduct the entire cost of eligible investment from taxable profits in the first year, cutting tax by up to 25p for every £1 invested. The 40% allowance allows a significant proportion of that benefit to be claimed immediately where full expensing does not apply.
The Treasury said the policy responds to calls from businesses to widen access to capital allowances and is intended to support investment in capital-intensive sectors such as retail and logistics.
Chancellor of the exchequer Rachel Reeves said: “Saving tax for businesses that are investing is key to building the confidence needed to boost growth. We are building on the UK’s capital allowance regime – one of the most generous in the world – alongside capping Corporation Tax and enabling more scale ups to attract investment to help create a tax system that supports growth.”
Corporation Tax remains capped at 25% for the rest of this Parliament, which the government said is the lowest rate in the G7. The UK is ranked among the most generous OECD countries for capital allowances on plant and machinery.
